Earnings call transcript: Tecsys Q1 2025 misses EPS forecast, stock dips

Tecsys Inc. (TCS) reported its fiscal Q1 2026 earnings, revealing a significant miss on earnings per share (EPS) and revenue expectations. The company posted an EPS of $0.05, falling short of the forecasted $0.1155, representing a 56.71% negative surprise. Revenue also missed estimates, coming in at $45.96 million against a forecast of $47.03 million. Following the announcement, Tecsys’ stock declined by 2.27%, trading at $737.22. According to InvestingPro data, the stock is currently trading near its 52-week range of $371.54 to $889.49, with remarkable year-to-date returns of 7.91%.

Key Takeaways

• Tecsys missed both EPS and revenue forecasts, leading to a 2.27% decline in stock price.
• Total revenue grew by 9% year-over-year, driven by a strong performance in SaaS.
• The company launched Tecsys IQ, an AI-powered data intelligence platform.
• Tecsys has initiated operations in India to accelerate R&D efforts.

Company Performance

Tecsys demonstrated a 9% year-over-year growth in total revenue, reaching $46 million for Q1 fiscal 2026. The company’s SaaS segment showed robust growth with a 25% increase, contributing $19.1 million to total revenue. InvestingPro data reveals impressive gross profit margins of 60.58% and a strong five-year revenue CAGR of 31%. Despite these positive trends, Tecsys fell short of market expectations, impacting investor sentiment and stock performance. Subscribers to InvestingPro can access 12 additional key insights about Tecsys’s financial health and growth prospects.

Financial Highlights

• Revenue: $46 million (9% YoY growth)
• Earnings per share: $0.05
• SaaS Revenue: $19.1 million (25% YoY growth)
• Adjusted EBITDA: $3.2 million (24% YoY increase)
• Net Profit: $762,000
• Gross Margin: 51% (up from 47% last year)

Earnings vs. Forecast

Tecsys’ EPS of $0.05 was significantly below the forecasted $0.1155, marking a 56.71% negative surprise. Revenue also fell short, with actual figures at $45.96 million compared to the expected $47.03 million, a surprise of -2.28%. This marks a deviation from previous quarters, where the company had maintained closer alignment with forecasts.

Market Reaction

Following the earnings release, Tecsys’ stock decreased by 2.27%, reflecting investor concerns over the earnings miss. Despite the recent decline, InvestingPro analysis indicates the company maintains strong fundamentals, with a current ratio of 2.95 and more cash than debt on its balance sheet. The stock has demonstrated impressive momentum with a one-year total return of 95.84%, though current valuation metrics suggest it may be trading above Fair Value. This movement contrasts with broader market trends, where similar sector stocks have shown resilience.

Outlook & Guidance

Tecsys remains optimistic about its future, projecting SaaS revenue growth between 20-22% and total revenue growth of 8-10% for the full year. The company is targeting an adjusted EBITDA margin of 8-9% and expects to achieve 80% SaaS gross margins in the long term. Tecsys is also working towards FedRAMP certification, anticipated by summer/fall 2026.

Executive Commentary

CEO Peter Brereton highlighted the launch of Tecsys IQ, stating, "Tecsys IQ is a dynamic tool that unifies fragmented data and delivers AI-powered insights." He also emphasized the company’s strategic initiatives, saying, "We’re investing to maintain and enhance our market leadership across the supply chain landscape."

Risks and Challenges

• Economic uncertainties may impact project timelines and revenue.
• The company’s ability to meet future forecasts is in question following the recent miss.
• Political and economic factors could lead to minimal project delays.
• Maintenance base migration is slowing, potentially affecting revenue streams.

Q&A

During the earnings call, analysts inquired about potential project delays due to economic uncertainties and the impact on revenue. Tecsys addressed concerns about its maintenance base migration and the lumpiness of deals, ranging from $250,000 to $3 million annually.

Full transcript - TECSYS Inc. (TCS) Q1 2026:

Conference Call Moderator: Good morning, everyone. Welcome to Tecsys Fiscal Year 2026 First Quarter Results Conference Call. Please note that the complete first quarter report, including MD&A and financial statements, were filed on SEDAR Plus after market close yesterday. All dollar amounts are expressed in Canadian currency and are prepared in accordance with International Financial Reporting Standards. Some of the statements in this conference call, including the question and answer period, may include forward-looking statements that are based on management’s beliefs and assumptions. Actual results may differ materially from such statements. I would like to remind everyone that this call is being recorded on Friday, September 5, 2025, at 8:30 A.M. Eastern Time. I would now like to turn the conference call over to Mr. Peter Brereton, Chief Executive Officer at Tecsys. Please go ahead.

Peter Brereton, Chief Executive Officer, Tecsys: Thank you. Good morning, everyone. Joining me today is Mark J. Bentler, our Chief Financial Officer. We appreciate you joining us for today’s call. I’m pleased to report a strong start to Fiscal 2026. SaaS revenue in Q1 grew 25% year over year to $19.1 million, driving total revenue of $46 million, up 9% from last year, or 13% excluding hardware revenue. Adjusted EBITDA was also strong at $3.2 million, up 24% from the same quarter last year. These results reflect the strength of our SaaS model and the resilience of demand across our target markets. SaaS ARR at the end of Q1 was $79.3 million, up $2.8 million in the quarter, driving the increase in the quarter with the additional booking of yet another new health system in the U.S. and continued expansions and migrations across our base of hospital networks like Life Science Logistics and general distribution customers.

On top of that, we added a major biomedical brand as a new logo just after the end of the quarter. Importantly, our SaaS pipeline continues to grow with particular strength in pharmacy and key markets within general distribution. In terms of customer momentum, we have a lot to be excited about. From RM Educational Resources in the UK and Life Science Logistics in the U.S. to Cornwall Community Hospital in Canada and entry into one of the world’s largest biomedical companies, we are experiencing activity across industries and geographies. We also saw continued uptake in our pharmacy offerings as more healthcare organizations respond to DSCSA and look to drive efficiency and visibility through their supply chains. Together, these examples demonstrate the depth of engagement and the breadth of our solution portfolio. Healthcare distribution continues to be a growth area for us.

We’ve been talking about DSCSA legislation for a while now, but as of August 27, this legislation is now officially being enforced. This, together with a portfolio of referenceable customers and a proven DSCSA supporting solution, is reflected in our pipeline activity. Beyond customer wins, we are investing in the long-term scalability of our business. As mentioned on our last call, we launched operations in India in Q1. I’m pleased to report that our new team in India has ramped up quickly and is already contributing features and code to our core product lines, accelerating delivery for our customers. As we noted on our Q4 call, we hosted our Tecsys User Conference early in the quarter, and we plan to hold this event annually moving forward.

This event is an important opportunity to engage directly with our customers, prospects, and partners, and it has already begun to translate into new business and contribute to our pipeline. On the innovation front, we continue to advance Tecsys IQ, building on the momentum we introduced in early Q1 at the User Conference. By way of reminder, Tecsys IQ is a data layer that interacts with the existing Tecsys ecosystem built on the Databricks Data Intelligence Platform. It is a dynamic tool that unifies fragmented data and delivers AI-powered insights across clinical, operational, and financial systems. Early feedback from customers has been positive. Use cases are being identified, and we remain confident in its role as a differentiator in the market as we roll it out for general availability in the coming months.

Continuing with innovation, as part of our upcoming mainline releases, we are excited about launching generative AI capabilities for our WMS and point-of-use solutions. I’m also pleased to share a company culture milestone. Tecsys has earned a Great Place to Work certification across all of our global operations for a second year in a row, with 92% of our employees rating Tecsys as a great place to work. We believe this reflects the trust and dedication of our people, which drives the innovation and customer commitments you see in our results. We have good reason to feel confident about our position in the market, our backlog in both SaaS and professional services, and the strength of our vertical strategy.

As we continue to invest in the products we sell and in our go-to-market strategy, Tecsys is proving to be among the best modern cloud-based solutions available in the markets we serve. The steady growth we have experienced affirms our vision and strategy for shareholder value. Mark will now provide further details on our Q1, as well as financial guidance on several key metrics.

Mark J. Bentler, Chief Financial Officer, Tecsys: Thank you, Peter. As a reminder to everyone, our first quarter ended July 31, 2025. I’ll start with SaaS. As Peter just mentioned, SaaS revenue growth was 25%, reaching $19.1 million in the quarter. As you’ll have seen in our MD&A, we’ve refined our KPIs to better reflect our growth drivers. With SaaS now the primary engine of our business and increasing share of our revenue, we’re shifting our focus to SaaS ARR instead of total ARR and SaaS bookings. SaaS ARR is an industry standard measure of near-term SaaS revenue potential, and when combined with SaaS RPO, it gives strong visibility into the durability of our SaaS growth. As Peter mentioned, SaaS ARR was $79.3 million at the end of Q1 fiscal 2026. That was up 21% from the same quarter last year. SaaS RPO was $226.3 million at the end of Q1 fiscal 2026.

That was up 16% from the same time last year. Moving on, professional services revenue for the first quarter was up 20% from the same quarter last year, reaching $16 million, and our professional services backlog at the end of Q1 remained strong at $43.7 million. That’s up 23% from the same time last year. For the first quarter of fiscal 2026, gross margin was 51% compared to 47% in the same period last year. The key drivers here are increasing SaaS margins as well as strength in professional services margins in the current quarter. Net profit in the quarter was $762,000 compared to $798,000 same quarter last year. Basic and fully diluted earnings per share were $0.05 in both Q1 this year and last year. Adjusted EBITDA was $3.2 million in Q1 of fiscal 2026 compared to $2.6 million same quarter last year.

Unlike Q1 last year, this year Q1 included about $0.7 million in costs for our Texas User Conference. If you look at adjusted EBITDA on an LTM basis, it’s actually up 55% through Q1 of fiscal 2026. We ended Q1 with a solid balance sheet. We had cash and short-term investments of $31 million and no debt. We used about $0.8 million of cash in the quarter to buy back shares under our NCIB normal course issuer bid. Additionally, the board yesterday approved a quarterly dividend of $0.085 a share. Turning briefly to financial guidance, we’re maintaining full-year fiscal 2026 guidance for SaaS revenue growth of 20% to 22%, total revenue growth of 8% to 10%, and an adjusted EBITDA margin between 8% and 9%. I’ll now turn the call back to Peter to provide some outlook comments.

Peter Brereton, Chief Executive Officer, Tecsys: Thanks, Mark. Our first quarter performance reflects a strong start to fiscal 2026 and the consistency of execution that has defined Tecsys over the past several years. SaaS revenue growth remains robust. Our install base continues to expand into white space with new cross-sell opportunities, and our pipeline positions us well for strong bookings in the coming quarters. Healthcare continues to be a strong growth engine for us, with pharmacy and adjacent life sciences markets, including medical device manufacturers, clinical laboratories, and digital pharmacies, all representing compelling opportunities as we broaden our value proposition in this area. We see this momentum in both North America and Europe, where we are expanding market awareness activities. At the same time, distribution remains a healthy growth factor across geographies.

We’re also investing in the future with continued feature innovation in our Elite solution, supported by our new India operations and the progress of our Tecsys IQ offering. We have a solid foundation for reliable long-term value creation. In summary, I want to remind you of our key themes for fiscal 2026. First, we’ll continue to invest to maintain and enhance our market leadership across the supply chain landscape with an emphasis on the end-to-end healthcare supply chain. This includes investments in product development and marketing to drive SaaS margin expansion and SaaS ARR growth. Second, we are unlocking the full potential of data with our AI-driven Tecsys IQ platform as a key driver of value and innovation across our solutions. This will be transformational for our customers.

Third, we remain disciplined in delivering customer satisfaction, ensuring our software is reliable, scalable, and easy to use, giving our customers every reason to be passionate advocates for us. We believe these pillars will enable us to continue delivering consistent profitable growth and shareholder value. With that, we will open up the call for questions. Thank you.

Conference Call Moderator: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. Should you wish to cancel your request, please press the star followed by the two. If you are using a speaker phone, please lift your handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Amr Ezzat from Momentum. Your line is now open.

Amr Ezzat, Analyst, Momentum: Peter, Mark, good morning. Congrats on the quarter. SaaS grew 25% in Q1 ahead of your 20% to 22% full-year guidance. Can you help us reconcile the strong start with the more, I don’t want to say muted outlook, but the lower outlook? Is that you guys just being conservative? Are you anticipating any specific headwinds through the balance of the year?

Mark J. Bentler, Chief Financial Officer, Tecsys: I think it’s just the challenge of continuing to increase growth on an ever-growing base of SaaS revenue. At the end of last year, our SaaS revenue growth was 29% year-on-year. That pool continues to grow. The last 12 months through Q1, that growth was 27%. The quarter-on-quarter growth number, you just mentioned it. If you triangulate on our SaaS ARR number and look at the growth rate in SaaS ARR at 21%, it sort of puts you right into our guidance range.

Amr Ezzat, Analyst, Momentum: Fantastic. Since you’ve moved away from disclosing bookings and are focusing more on SaaS ARR and RPO, and maybe that’s a contextual question, can you frame for us how much of your fiscal 2026 SaaS growth is essentially carrying RPO versus expected in your additions? In other words, what’s the incremental lift you’ll need from new contracts or bookings to stay in your guidance range?

Mark J. Bentler, Chief Financial Officer, Tecsys: Yeah. When we entered the year, we were about 92% booked against our revenue forecast range. That means our SaaS ARR was covering, you know, about 90%. It was 92% of our production.

Amr Ezzat, Analyst, Momentum: How would that compare to previous years? Is that 92% a good number or?

Mark J. Bentler, Chief Financial Officer, Tecsys: Yeah, it’s growing. It’s growing. It’s getting more and more covered. We’re less and less dependent on, you know, new bookings to drive our target number just again as that base of SaaS ARR growth.

Amr Ezzat, Analyst, Momentum: Okay. Sorry to harp on bookings again, but if I look at your SaaS ARR at 21%, RPO grew 16%, and I know there’s often a mismatch every quarter. For our benefit, can you help us understand how the structure of new contracts or booking is evolving over time or over the past couple of years? Are you generally seeing shorter average terms, or is the mismatch more about timing of multi-year deals?

Mark J. Bentler, Chief Financial Officer, Tecsys: Yeah, I think it’s more about timing of renewals and then the extent of renewals as well. Some renewals will auto-renew at a one-year renewal period. When that happens, you pick up a year of RPO. Other contracts will renew for multiple years. That could be three, four, or five, even actually more than that. Of course, that has a different sort of outsized impact on RPO. I don’t think anything fundamentally has changed. I think the RPO number is just, I mean, it’s a little bit tricky to look at and triangulate back to the SaaS ARR number just because of timing of renewals. I think as our SaaS base grows larger and larger, it’ll kind of moderate, moderate with scale, that difference. Right now, it’s certainly timing-related.

Amr Ezzat, Analyst, Momentum: Okay. The average term, if you will, of your RPO today versus like two, three years ago is more or less the same? Is that fair?

Mark J. Bentler, Chief Financial Officer, Tecsys: Yeah, it’s pretty consistent. Yep.

Amr Ezzat, Analyst, Momentum: Okay. One more, and I’ll pass the line. Hardware tends to be lumpy. I think we all understand that, but I think that’s the lowest level I’ve seen since the Tecsys acquisition in 2019. Can you maybe give us color on what’s happening there and how we should be expecting it to evolve over the year?

Mark J. Bentler, Chief Financial Officer, Tecsys: Yeah. I mean, we still, we keep having this conversation, and you’re absolutely right that that was kind of a little louder mark there in the quarter. I mean, we did have some pretty reasonable bookings during the quarter. You know, if I was going to read some tea leaves, I would say that I definitely don’t expect Q2 to be lower than Q1. It’s a question of timing and uptake and deliveries on projects. I mean, there’s not anything really, I would say, systemic that’s happening there that would continue to drive down that hardware revenue number. It’s just kind of getting to the, you know, this sort of what I think is probably kind of a bottoming out rate right now.

Amr Ezzat, Analyst, Momentum: Fantastic. I’ll jump back into Q.

Conference Call Moderator: Thank you. Your next question is from Gavin Fairweather from Foremark Securities. Your line is now open.

Gavin Fairweather, Analyst, Foremark Securities: Oh, hey, good morning. Thanks for taking my questions. Nice to hear the commentary around the pipeline in the summer, and Peter, you talked about the resilience of your customers in the prepared remarks. Maybe we could just kind of check in on the demand environment, given the political backdrop. What are you hearing from customers on your investment appetite? Are you finding additional decision hoops that you’re jumping through, or any bigger focus on ROI? Maybe just some comments on that front would be helpful.

Peter Brereton, Chief Executive Officer, Tecsys: Sure. It’s been interesting. The main thing we’ve been dealing with over the last five to six months is just a lot of distraction. It doesn’t seem to have changed intent. I haven’t heard of any customers say, you know, oh, we’re going to hold back on this project and not do it for the next year or two because of concerns about, for instance, Medicaid. I mean, that was one of my worries was that Medicaid would concern them. We haven’t heard that. We haven’t heard concern about tariffs, etc.

In terms of intentionally delaying projects, what we have seen over the last five or six months is in a number of cases, it was just playing hard to get the attention of senior decision makers to get them focused on moving a project through to conclusion or through to signature just because they’re so busy trying to figure out how to source product in and around all the tariffs. We’ve been battling distraction, but as I say, no, we haven’t seen situations where boards are instructing management teams to cut back on spend or CFOs doing the same. It’s been just distraction. If you’re the head of a supply chain for a large hospital network, the last four or five months have been pretty complicated. At the same time, we were talking about this with the board yesterday. Everyone’s kind of getting used to the distraction.

It’s kind of getting back to more business as usual. We’re looking forward to a pretty busy fall. It seems like everyone’s just kind of getting used to the noise. It feels like it’s starting to move a little quicker again.

Gavin Fairweather, Analyst, Foremark Securities: Great to hear. Secondly, just on migrations, nice to hear there was another one here in the first quarter. I know you’ve made a lot of progress on the base, but how are you thinking about the amount of maintenance ARR that will still shift to SaaS over time? How are you thinking about the shape of that curve this year versus in future years?

Peter Brereton, Chief Executive Officer, Tecsys: That is, now you’re asking us to do some crystal ball gazing, which is really difficult. What I can tell you is that the bulk of the migration to SaaS is behind us. I mean, you know, if you look over the last few years, we’ve come through years where migrations from our old on-prem maintenance base over to SaaS accounted for 50% of our new SaaS bookings or whatever. That has continued to drop. I don’t know what it’ll be this year. My hunch is it’ll be in the 20% range, maybe 25% range this year. It’ll be a lot lower. More and more of our SaaS growth needs to come from new accounts and expansions of existing SaaS accounts. What that means is we’re also eroding the maintenance base in a way more slowly.

You know, what’s left there is really likely to stay there for a fairly extended period of time unless they move to some competitive product. We’re anticipating seeing that maintenance number drop. You saw it drop in the first quarter. We’re down almost 20%. Actually, a little over 20% from last year. Sorry, it’s 10%. 10% from last year. We’re expecting it to continue to drop. There’s a bit of a floor there at some point because most of the drop that you’re seeing is related to, in effect, us raiding our own maintenance base. That is actually slowing down. We anticipate that number is continuing to drop, but it’s going to drop fairly slowly. I don’t know what number you’d put on it. If I were to hazard a guess, I’d say averaging 7% to 10% a year over the next five years.

Gavin Fairweather, Analyst, Foremark Securities: Helpful. Maybe on Tecsys IQ, if I kind of heard you correctly in the script, it sounds like you’re in the process of starting to sketch out initial use cases now and socializing them with customers. What’s your level of excitement around this in terms of it being another kind of, you know, upsell lever that you can pull a year or two out? I don’t know what the timeline is as you start to be able to showcase the value to customers.

Peter Brereton, Chief Executive Officer, Tecsys: Yeah, I mean, we’re definitely excited about it. I think we’re going to get virtually 100% uptake. The value it provides is unbelievable. You know, imagine, I may have used this example before, but we see it in the data. We see it in how this platform operates. Imagine a Head of Surgery in a major hospital being able to just go into a chat and literally say to Tecsys IQ, "Okay, how many scheduled surgeries are at risk over the next two weeks?" And it comes back and says, you know, 12. And it says, "Okay, why are they at risk?" Well, because you’re short of these four products. "Oh, well, which of these four products could we find substitutes for?" Well, these three, you’ve got a good substitute for. So just, you know, get some of those. This other one, there’s no substitute for.

That means these three surgeries are doomed. They’re going to have to be rescheduled. It’s literally that level of conversation that you can have with the data. It just puts power into the hands of core decision makers like they’ve never had before. I think you’re going to have almost 100% uptake in our base. The other thing I’m convinced it’s going to do is I’m convinced it’s going to finally begin to flip the huge percentage of the market, which is still running what they put in back in time for Y2K. Across the general supply chain, there’s, you know, varying depends on which analysts you talk to, but it’s anywhere between sort of 70% and 82% or something of systems that are out there running are, you know, were put in place over 25 years ago.

This, I think, is really going to finally start to drive that flip. As you know, it’s not just us coming out with product like this. Our competitors are too in the general distribution space. It’s going to finally shake up and wake up that market, I believe. I think we’re in for an exciting time.

Gavin Fairweather, Analyst, Foremark Securities: Great to hear. Maybe for Mark, lastly for me, just on services, gross margins strong again this quarter. Obviously, PS utilization looks high, good backlog still there. I think, you know, SaaS gross margins are continuing to poke higher. Do you think we can kind of maintain these levels here going forward? Do you see some additional expansion opportunities? Maybe help us out on that line.

Amr Ezzat, Analyst, Momentum: On the professional services in particular?

Gavin Fairweather, Analyst, Foremark Securities: I was talking about the overall services gross margin.

Amr Ezzat, Analyst, Momentum: Yeah. Yeah. Yeah. No, we’re definitely expecting, you know, continued margin expansion from those two areas. You’re right that professional services is, I mean, we had a good, a good, another good strong quarter. I think we, you know, we’ve talked about over the last few quarters where the capacity lever is there with the existing team and utilization is high. This sort of $16 million number is, you know, it’s definitely at the top end of what we can do with the team. We’re thinking about, you know, that against the backlog and, you know, do we hire, do we hire there to drive more faster? There’s always that decision to be made. I think we can sustain these kind of levels and that kind of margin in the PS area, you know, given that backlog.

I think, you know, on the SaaS side, we just continue to, you know, create and see pull-through on margin expansion opportunities as that revenue line scales and we continue to invest in product side efficiency. Yeah, we expect, you know, we expect continued improvement in that margin.

Gavin Fairweather, Analyst, Foremark Securities: Thanks so much. I’ll pass it on.

Amr Ezzat, Analyst, Momentum: Thanks, Gavin.

Conference Call Moderator: Thank you. Your next question is from John Shao from National Bank Financial. Your line is now open.

John Shao, Analyst, National Bank Financial: Hey, good morning, guys. Thanks for taking my question. I have a similar question regarding your SaaS margin expansion. With the release of Tecsys Mainline, just curious about the implications to your future margin profile. My understanding is the Mainline is a more efficient form of SaaS infrastructure.

Peter Brereton, Chief Executive Officer, Tecsys: Yeah, that’s correct. Mainline changes quite a few things. It utilizes much more advanced sort of plumbing on the back end that allows us to share CPU capability and memory capacity and so on in the public cloud infrastructure. It automates the maintenance and upkeep of those environments. In effect, if we’ve got, you know, 150 customer environments to maintain, we can literally push one button and update all of them in terms of, you know, security updates or patches or any of those kinds of things. When it comes to migrating forward, release to release, what used to be a more significant project can now also happen with a push of a button. For our clients that sit on Mainline, we grant them access to a sandbox with the next release, gives them time to do some of their own testing and work and so on.

When they’re ready, we just push the button and, you know, within literally a few minutes, they’re on the next release. It’s more reliable, it’s more scalable, it’s more maintainable. Our labor costs are a lot lower, the effort for the client is a lot lower, and our public cloud infrastructure costs are lower. It’s pretty significant. In our march to drive SaaS gross margins, we’ve been moving them up year by year. The goal is to get them to 80%. Mainline is a key component of the strategy to get them to 80%.

John Shao, Analyst, National Bank Financial: Okay. Thank you, Peter. That’s a great caller. Regarding your R&D costs, how should we think about the cost line going forward, given, you know, the establishment in your offshore R&D center? Do you think the cost will flatten out at the current level and will become a source of a future margin expansion?

Peter Brereton, Chief Executive Officer, Tecsys: Yeah, I mean, we’ve got some things in there that are heavier lift right now. For instance, we’re currently going through FedRAMP certification, you know, to comply with, I mean, in order to service the U.S. federal government, as well as many of the state agencies and state healthcare organizations and so on, you have to be FedRAMP compliant. That’s a pretty significant effort and is driving, you know, some of the increase you’re seeing in R&D costs this year. That’s sort of already baked into the number, the run rate this year. I would anticipate that you’ll continue to see increase in R&D costs, but more at a level of sort of, if I had a hazard guess, it’s, you know, mid-single digits as opposed to what you’re seeing right now.

What you’re seeing right now is the impact of a couple of heavy lift items that we had to get behind us. After this, I think it’ll be back to a much more muted growth level.

John Shao, Analyst, National Bank Financial: Got it. On FedRAMP, I remember that discussion has been around for a while. Could you give us an updated timeline when do you think it’s going to be completed?

Peter Brereton, Chief Executive Officer, Tecsys: I mean, we anticipate that we will be FedRAMP ready, you know, and FedRAMP certified by about a year from now. There’s an effort. The process is now sort of well-documented, well-defined. We think we’ll be ready by sort of more or less Christmas time to enter the certification phase. The certification phase involves an auditor going through and auditing literally hundreds of internal processes from how you hire people to how you cut staff to how you deploy software, what type of software you deploy, what type of cameras you have at your offices, how your doors lock. I mean, it covers a vast array of subjects. Those audits have to happen. That will happen through the winter and spring. We expect that it’s into the summer and early fall next year by the time we have our full authorization to operate. That’s our expectation there.

The marketplace is beginning, I mean, the governments are beginning to enforce compliance with it. We’re still in early phases of that. We’ve got a contract running with one of the major U.S. federal government departments, which is actually our sponsor for FedRAMP. They have temporary permission to work with us pre-FedRAMP authorization. Within a year, we have to be FedRAMP authorized. It’s getting to that point where these various departments and agencies are having to work only with FedRAMP compliant vendors. It’s going to be interesting to see what it does in the market because from what we can see, if you look at, for instance, the general WMS and supply chain execution space, there’s only going to be a handful of vendors from what we can see right now that are going to be FedRAMP certified.

It certainly means in those market spaces, I think the competition will be a lot less than it used to be. We’ll see how it goes.

John Shao, Analyst, National Bank Financial: That’s great to know. Thank you so much. Please pass the line.

Peter Brereton, Chief Executive Officer, Tecsys: Okay.

Amr Ezzat, Analyst, Momentum: Thanks, John.

Conference Call Moderator: Thank you once again. Please press star one if you wish to ask a question. Your next question is from Suthan Sukumar from Stifel. Your line is now open.

Suthan Sukumar, Analyst, Stifel: Good morning, Jens. Wanted to touch on the pipeline growth that you saw during the quarter. It just sounded like it was pretty healthy, pretty robust given the, you know, a more seasonally slower summer period. With respect to kind of sales cycles and deal sizes, what changes are you seeing, you know, quarter to quarter and over the last year? Curious, how do you think that might translate to that pipeline strength translate to bookings trajectory over the course of the year? I’m just wondering if, you know, is it reasonable to expect a more consistent pace of bookings growth, or is there potential or still potential for some outsized contribution in a given quarter?

Peter Brereton, Chief Executive Officer, Tecsys: I mean, these are always hard to predict. Our deals are still lumpy. If you look at a full year, we try to add anywhere from sort of $16 million to $20 million or more to our SaaS number in a year. When you look at that and say, okay, what’s your average size deal? We’ve got deals that sign that are as low as, you know, $250,000 or $300,000 a year of SaaS. We’ve got deals that sign that are, you know, $2.5 million, $3 million of SaaS. It will still be lumpy. When we look at the pipeline, I think one of the reasons why you’re hearing a lot of confidence from us about the pipeline is we’ve actually, on the non-hospital side, really narrowed the focus. In fact, if you look through our latest investor deck, you’ll see we’ve changed some of those slides.

We’re really going after the verticals within the distribution space where we know our win rate is over 50%. Those are the life sciences areas, pharmaceutical, podiatry, eye care, ear care, etc., the 3PL businesses that are related to those verticals, etc. We’ve got some other ones too. Electrical is one where our win rate is super high. We’ve narrowed our focus to the markets where we know our win rate is very, very high. In spite of narrowing that focus to high win rate markets, we’re finding strong pipeline growth. Overall, we’re looking at this and saying this looks like a pretty interesting year. Pharmacy as well in the hospital space has, you know, we now have had a number of successful go-lives, and those customers are ready to talk about their successes. That’s another factor, right?

It gives us sort of, we think it’s going to unleash the next wave of pharmacy expansion. All in all, we’re sort of looking across the landscape and saying, okay, we know there’s a lot of political noise going on and a lot of complex issues in supply chain spinning out of that. The marketplaces that we serve seem ready to roll, and the pipeline looks ready for a pretty good year.

Amr Ezzat, Analyst, Momentum: Great. That’s a helpful caller. I also want to touch on the pro-services strength that you guys saw during the quarter. Can you provide some color on what you’re seeing there with respect to ongoing implementation and delivery timeframes? Is there any notable difference between your internal pro-services capabilities versus, you know, the deals that are being partner-led?

Peter Brereton, Chief Executive Officer, Tecsys: Yeah, I mean, some of this has just been, I mean, there’s an ebb and flow that goes on here. Our partners continue to do well. RiseNow continues to expand their business around our platform. We’ve got ongoing relationships with Avalon and, you know, Deloitte and others. Lumpy deals can drive pretty big swings in professional services and professional services backlog. The profitability of American hospital networks also drives a pretty significant swing there. Calendar 2023, most U.S. hospitals lost money. They had very little money to spend. In calendar 2024, they made money. Now in calendar 2025, they’ve got more money to spend. They’re funding more projects. They’re moving more quickly with their implementations. They’re hiring bigger teams. That’s driving this sort of expansion in the pro-services backlog. We don’t expect, as you can see, the pro-services number this quarter was up 20% over the same quarter last year.

We don’t expect that level to continue to grow at 20%. We expect strong numbers this year in pro-services. If I look over the next three years, I think you’re going to see pro-services revert back to, I don’t know what, Mark, what, high single digits, something like that?

Amr Ezzat, Analyst, Momentum: Yeah, mid-high.

Peter Brereton, Chief Executive Officer, Tecsys: Yeah.

Amr Ezzat, Analyst, Momentum: Thank you. More broadly, just on partners, how has partner engagement been trending to date? What do you expect from the partner channel this year in terms of their contribution?

Peter Brereton, Chief Executive Officer, Tecsys: Partner engagement has remained pretty consistent. If you look at our pipeline, we’re continuing to run with, even as the pipeline expands, we continue to see 25% to 30% of our pipeline is what we call partner-influenced. What that tells you is we continue to lead the charge in most cases in terms of finding the opportunity, getting it into the pipeline, and bringing it through to a conclusion. We would like to see the partner-influenced pipeline get closer to the 50% level. Over the last couple of years, it’s remained in that 25% to 30% range. Now, as I say, the pipeline has grown significantly. Our pipeline is roughly double what it was 18 to 24 months ago. The pipeline’s grown pretty significantly, which means the partner piece has also grown significantly. As a slice of the total pie, it’s remained in that 25% to 30% range.

Amr Ezzat, Analyst, Momentum: Okay. Perfect. Thank you for taking the questions. I’ll pass the line.

Peter Brereton, Chief Executive Officer, Tecsys: Thank you.

Amr Ezzat, Analyst, Momentum: Thanks so much.

Conference Call Moderator: Thank you. There are no further questions at this time. Please proceed.

Peter Brereton, Chief Executive Officer, Tecsys: Great. Thank you. Thank you, everyone, for joining us for this update on Q1. As always, if you have additional questions, please don’t hesitate to reach out to Mark or myself. We will look forward to speaking to you at the end of November for the release of our Q2 results. Thanks. Have a great day. Bye for now.

Conference Call Moderator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your line.

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